Solution Manual for Strategic Management: A

Competitive Advantage Approach, Concepts &

Cases, 15/E 15th Edition Fred R. David, Forest R.
David

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Solution Manual for Strategic Management: A Competitive Advantage Approach, Concepts & Cases

Chapter 9 - Strategy Review, Evaluation, and Control

Overview
Chapter 9 describes how to effectively evaluate strategies and make timely
changes as needed. In this context, Chapter 9 explains how to develop a Balanced
Scorecard and utilize contingency planning.

The Chapter 9 Learning Objectives as provided in the textbook are as follows:

1. Describe a practical framework for evaluating strategies.

2. Explain why strategy evaluation is complex, sensitive, and yet essential for
organizational success.
3. Discuss the importance of contingency planning in strategy evaluation.
4. Explain the role of auditing in strategy evaluation.
5. Describe and develop a Balanced Scorecard.
6. Discuss three 21st-century challenges in strategic management.

Teaching Tips
1. The first issue to emphasize in this chapter is the fact that even successful firms can
fail quickly as they are the target of all other firms, so evaluating strategies is essential for
all firms. Even Apple is struggling of late as Samsung and other rival firms imitate and
duplicate their products and then offer such at lower prices.

2. The second issue to emphasize in this chapter is the strategy evaluation that consists of
three activities: Review Underlying Bases of Strategy, Measure Performance, and Take
Correction Action. Review the tables in this chapter that summarize the narrative quite
well.

3. The third issue to emphasize is the Balanced Scorecard. Pull up Google in class, and
search by Balanced Scorecard Images and show students the more than 100 corporate
Balance Scorecards in use by companies.

4. The fourth issue to emphasize is the “21st First Century Challenges in Strategic
Management.” These issues are important and fun to discuss in class with students
because there are variations of opinion and views on art vs. science and visible vs. hidden
and top-down vs. bottom-up.

5. At the end of Chapter 9, direct student attention to the “Special Note to Students” that
reminds them to search for corporate Balance Scorecards.

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6. Regarding the end-of-chapter review questions, consider assigning one half of them
one day in class giving each student a question, and letting them tell the class the answer,
with you commenting on their answers. Do the other half another day. This is a fun day
in class and it goes pretty quickly.

7. Several of the end-of-chapter Assurance of Learning Exercises can be used as

excellent homework or classwork assignments to be completed as an individual or as a
group of students. Select one for a class exercise.

Answers To to End-of-Chapter Review Questions

1. If a firm has two regions and two products, develop a sample framework for measuring
organizational performance.

Answer: More than a dozen variables could be used down the left column, but a sample is given
below.

Factor Actual Result Expected Result Variance Action Needed

Revenues
Region 1
Region 2
Product 1
Product 2

Profits
Region 1
Region 2
Product 1
Product 2

ROI
Region 1
Region 2
Product 1
Product 2

2. Do an Internet search using the keywords “Balanced Scorecard Images.” Pick out two
images among the hundred available. Compare and contrast the two images/processes as
to effectiveness.

Answer: Student answers will vary depending on the selections made. See:
http://www.google.com/search?q=balanced+scorecard+images&hl=en&tbm=isch&tbo=u&source=u
niv&sa=X&ei=mS1oUdb_Lo7u9ASex4DYBw&ved=0CC0QsAQ&biw=1440&bih=697

3. Do an Internet search using the keywords “GAAP to IFRS” to update yourself on this
important transition coming soon in the USA.

Answer: Student answers will vary. A good website is www.ifrs.com. On April 2, 2013, -
The the IFRS Foundation announced the publication of the following translations:

• Arabic translation of the 2012 International Financial Reporting Standards (Red Book).

• Brazilian Portuguese translation of the 2012 International Financial Reporting Standards (Red
Book). (IFRS.org)

4. How does an organization know if it is pursuing “optimal” strategies? Formatted: Font: Bold

Answer: It is impossible to demonstrate conclusively that a particular strategy is optimal or

even to guarantee that it will work. One can, however, evaluate it for critical flaws using four
criteria: consistency, consonance, feasibility, and advantage. Consonance and advantage are
mostly based on a firm’s external assessment, whereas consistency and feasibility are largely
based on an internal assessment.

5. Discuss the nature and implications of the upcoming accounting switch from GAAP to IFRS Formatted: Font: Bold
in the United States.

Answer: The accounting switch from GAAP to IFRS in the USA is going to cost businesses millions
of dollars in fees and upgraded software systems and training. CPAs need to study global accounting
principles, and business schools should go ahead and begin teaching students the new accounting
principles. Movement from GAAP to IFRS encompasses a company’s entire operations, not just
auditing. The USA is the only country that still uses GAAP and this makes global business
cumbersome. The switch is coming likely in the next three years. The switch is already optional and
being phased in, so the only question is when will it become mandatory.

6. Ask an accounting professor at your college or university the following question and report
back to class: “To what extent would my learning the IFRS standards on my own give me
competitive advantage in the job market”?

Answer: Learning the IFRS standards would boost a students’ competitive advantage for several
reasons. First, it would demonstrate that the student is aware of current global issues. Second, it
would benefit prospective employers, who may soon undergo IFRS training for employees if they
have not already done so. Perhaps most importantly, this would show initiative and motivation from
the student.
7. Give an example of “consonance” other than the one provided by Rumelt in the chapter.

Answer: Consonance refers to the need for strategists to examine sets of trends, as well as individual
trends, in evaluating strategies. For example, today’s more diverse workforce is a result of many
trends, including increased level of education for minorities, diversity initiatives directed at children
and young adults, and greater geographic mobility of the world population.

8. Evaluating strategies on a continuous rather than a periodic basis is desired. Discuss the
pros and cons of this statement.

Answer: Strategy-evaluation should be performed on a continuous basis, rather than at the end of
specified periods of time or after problems occur. An advantage of evaluating strategies on a
continuous rather than on a periodic basis is that it allows benchmarks of progress to be established
and more effectively monitored, and corrective actions to be taken in a timely manner. An advantage
of evaluating strategies on a periodic basis is that it is easier and less expensive to evaluate strategies
annually or only after problems occur.

9. How often should an organization’s vision/mission be changed in light of strategy evaluation

activities?

Answer: An organization’s vision/mission should be changed whenever key underlying internal and
external factors change for that firm. There is no specific lifespan or timeline for revising a
vision/mission, as managers continually evaluate broad strategies and progress being made toward
meeting the firm’s objectives. However, an annual, formal assessment is customary.

10. Compare Mintzberg’s notion of “crafting” strategies with this textbook’s notion of
“gathering and assimilating information” to formulate strategies.

Answer: Mintzberg’s “crafting” strategies notion embodies the artistic model, suggesting that
strategic decision-making be based primarily on holistic thinking, intuition, creativity, and
imagination. To often, emotion and politics erode this process. Thus, the author advocates an
objective, systematic collection and evaluation of key internal and external factors that provide a
basis for development of five matching analytical tools to determine feasible alternative strategies.
The author is all about prioritization in the planning process, and reaching consensus through
collaboration using analytical tools to assist. The very survival of the firm may be at stake, so the
author advocates doing ones homework to develop an excellent strategic plan, similar to what Coach
Sabin Saban or Miles or Myer would do in putting together a game plan.

11. Why has strategy evaluation become so important in business today?

Answer: Strategy evaluation is critically important today because internal and external factors often
change quickly and dramatically. Key factors need to be monitored during strategy-evaluation
activities. For example, technology is shortening the product life cycle in nearly all industries.
Smartphones are rapidly connecting the world, creating available consumers/customers in countries
the firm never previously even considered. Another reason strategy evaluation is so important today
is that corrective actions to re-steer a strategy or strategic plan must be made in a timely manner,
before it is too late for the firm to recover.

12. BellSouth Services is considering putting divisional EFE and IFE matrices online for
continual updating. How would this affect strategy evaluation?

Answer: Putting divisional EFE and IFE matrices online could facilitate strategy evaluation, but
generally these matrices are part of the internal information system of a firm, and are not made
available publically. So continual updating is good and desired, internally, rather than the updating
being a public process.

13. What types of quantitative and qualitative criteria do you think Ellen Kullman, CEO of
DuPont, uses to evaluate the company’s strategy?

Answer: Ms. Kullman uses financial ratios as quantitative criteria to evaluate DuPont’s market
development strategy. She also used Rumelt’s qualitative criteria for evaluating strategies. She
continually monitors internal and external factors as part of DuPont’s strategy-evaluation process,
because significant changes in underlying factors can necessitate a change in corporate strategy
before those factors negatively impact earnings and revenues.

14. As owner of a local, independent supermarket, explain how you would evaluate the firm’s
strategy.

Answer: For small businesses such as a local supermarket, strategy evaluation is less formal than in
large organizations. However, both qualitative and quantitative criteria should be used to evaluate
the small supermarket’s strategies, because large supermarket stores offer one-stop shopping for
virtually everything. I would follow the three basic activities presented in the chapter: 1) Review the
underlying bases of strategy, 2) measure performance, and 3) take corrections.

15. Under what conditions are corrective actions not required in the strategy-evaluation
process?

Answer: The only time corrective actions would not be required in strategy evaluation is when major
changes have not occurred in the firm’s internal or external strategic position, and the firm is
progressing satisfactorily towards achieving its stated objectives.

16. Identify the types of organizations that may need to evaluate strategy more frequently than
others. Justify your choices.

Answer: Organizations that compete in more turbulent industries may need to evaluate strategies
more often than others. Examples include the telecommunications, aerospace, software, smartphone,
and media industries.
17. As executive director of the state forestry commission, in what way and how frequently
would you evaluate the organization’s strategies?

Answer: Strategy evaluation should be an ongoing, continuous process rather than conducted at the
end of a specified period of time, such as at the end of each year or at the end of every three years.
The need exists to continually re-evaluate the forestry commission’s strategies as legislative actions
evolve and as constituency groups align for or against important issues facing the state. I would
follow the three basic activities presented in the chapter: 1) Review the underlying bases of strategy,
2) measure performance, and 3) take corrections.

18. Identify some key financial ratios that would be important in evaluating a bank’s strategy.

Answer: In a bank, two key financial items are demand deposits (checking accounts) and time
deposits (savings accounts). Other important items are commercial loans and consumer loans. The
ratio of these items to total bank assets and total bank profits could be particularly important in
evaluating the strategies of a bank. Even ratios such as # of customers by square footage of branch,
or the ratio of consumer loans to commercial loans, are the type unique ratios important to a bank.

19. Strategy evaluation allows an organization to take a proactive stance toward shaping its
own future. Discuss the meaning of this statement.

Answer: Proactive means the firm tries to anticipate, initiate, and influence. Reactive means
the firm just reacts to events and trends. Strategy evaluation enhances a proactive approach to
management.

20. Explain and discuss the Balanced Scorecard.

Answer: The Balanced Scorecard is a strategy evaluation tool that allows a firm to evaluate
strategies from four perspectives: financial performance, customer knowledge, internal business
processes, and learning and growth. It includes examination of customer loyalty, manager and
employee morale, operations and processes, business ethics, sustainability, social responsibility,
community involvement, and financial issues. The word “balanced” derives from the balance of
quantitative with qualitative objectives and measures. Too many firms rely only on quantitative
ratios and such measures.

21. Why is the Balanced Scorecard an important topic both in devising objectives and in
evaluating strategies?

Answer: The Scorecard is often used to evaluate strategies. The Balanced Scorecard is a strategy
evaluation tool that allows a firm to evaluate strategies from four perspectives: financial
performance, customer knowledge, internal business processes, and learning and growth. It includes
examination of customer loyalty, manager and employee morale, operations and processes, business
ethics, sustainability, social responsibility, community involvement, and financial issues. The word
“balanced” derives from the balance of quantitative with qualitative objectives and measures. Too
many firms rely only on quantitative ratios and such measures.
22. Develop a Balanced Scorecard for a local fast food restaurant.

Answer: Answers to this question will vary, but should follow the Balanced Scorecard template
shown below.

Area of Objectives Measure or Target Time Expectation Primary ResponsibilityFormatted Table

Customers
1.
2.
3.
Managers/Employees
1.
2.
3.
Operations/Processes
1.
2.
3.
Community/Social
Responsibility
1.
2.
3.
Business Ethics/ Natural Formatted: Font: 11 pt
Environment
1.
2.
3.
Financial
1.
2.
3.

23. Do you believe strategic management should be more visible or hidden as a process in a
firm? Explain.

Answer: Most students will agree that some strategic information should remain confidential to top
managers, and that steps should be taken to ensure that such information is not disseminated beyond
the inner circle. Visibility and openness may not be best for all strategists and all firms. However, the
are some important benefits of visibility, as indicated below:

Reasons for Visibility

• All stakeholders can readily contribute to the process, which results in many excellent ideas.
• Investors and creditors have a greater basis for supporting a firm.
• Visibility promotes democracy and secrecy promotes autocracy.
• Participation and openness enhances understanding, commitment, and communication within
the firm.

Reasons for Secrecy

• Without secrecy, competitive intelligence can learn and exploit information.
• Secrecy limits criticism, second-guessing, and hindsight.
• Participants in a visible strategy become more attractive to rival firms who may lure them
away.
• Secrecy limits rival firms from imitating or duplicating the firm’s strategies and undermining
the firm.

24. Do you believe strategic management should be more a top-down or bottom-up process in
a firm? Explain.

Answer: There is support for both approaches. Those who support the top-down approach
believe that top executives are the only persons in the firm with the collective experience,
acumen, and fiduciary responsibility to make key strategy decisions. Those who support the
bottom-up approach believe that lower and middle-level managers and employees who will be
implementing the strategies need to be actively involved in the process of formulating the strategies
to assure their support and commitment and to be assured that their ideas and wisdom is included in
the process.

25. Do you believe strategic management is more an art or science? Explain.

Answer: The textbook supports a scientific view based on objective analysis of relevant factors.
However, others like Mintzberg recognize that there can be a “craft” to developing strategies and
some strategies do emerge based on situations. The bottom line however is that too much is at stake,
and the variables are too many and too interrelated, to rely on an artistic approach. The author
contends that strategic management is 70% science and 30% art. Judgment and intuition always
come into play, even in assigning weights and ratings in analytical tools, but gathering, assimilating,
and prioritizing information is essential in strategic planning.
Answers To to The the End-of-Chapter Assurance of
Learning Exercises
ASSURANCE OF LEARNING EXERCISE 9A:
EXAMINE 100 BALANCED SCORECARDS

ANSWER:

The term “balanced” comes from the need to balance quantitative with qualitative
objectives in managing a business operation. Just google Google “balanced scorecard
images” and you come to the url below that provides over 100 different visually appealing
balanced scorecard images:

http://www.google.com/search?q=balanced+scorecard+images&hl=en&tbm=isch&tbo=u&so
urce=univ&sa=X&ei=MDqFUfm0NpHK9QSpxoDQCA&ved=0CC0QsAQ&biw=1440&bih
=713
Balanced scorecard images vary greatly.

Some of the most common design elements are:

• Diagram with four boxes for financial, customer, internal business processes, learning
and growth
• Pyramid diagram
• Database image
• Flowchart

A sample balanced scorecard that students may wish to reference in this activity.

Area of Objectives Measure or Target Time Expectation Primary

Responsibility
Customers
1.
2.
3.
Managers/Employees
1.
2.
3.
Operations/Processes
1.
2.
3.
 Community/Social
Responsibility
1.
2.
3.
Business Ethics/
Natural Environment
1.
2.
3.
Financial
1.
2.
3.

ASSURANCE OF LEARNING EXERCISE 9B:

PREPARE A STRATEGY-EVALUATION REPORT FOR PEPSICO

ANSWER:
Current statistics reveal that per capita soda consumption in the USA has dropped
annually for the last fifteen years, to 44 gallons in 2013, from 54 gallons in 1998. The
primary reason for this decline is increasing health concerns associated with carbonated
drinks. However, a May 2013 survey by the U.S. Food and Beverage Industry estimates
that the food and beverage industry will see high growth in 2013 from new
health/wellness products (51%), increased selling prices (40%) and new customers
(59%). Consumer preferences are shifting from soda drinks to juice, tea, bottled water,
and flavored water. The shift from carbonated drinks to energy drinks as a huge
opportunity (and threat) for PepsiCo; the firm needs to add ‘rehab’ drinks and energy
drink flavors to its product portfolio. PepsiCo needs to develop and offer new energy
products globally.

PepsiCo can still make significant money selling soda in emerging markets, like
its Asia & Middle East and Africa markets, where sales rose by 12% and 15%
respectively in the first quarter of 2013. In addition, PepsiCo is working to increase its
cola sales by adding Novel natural sweetener in cola drinks without sacrificing the taste.
This cola drink is under FDA review process, and as soon as it gets approval, it will
likely be launched in all markets.

PepsiCo is also cutting 8,700 jobs across 30 countries, or 3 percent of its

workforce globally, as part of its profit/efficiency improvement program. This PepsiCo
program seeks to save the firm $900 million annually and $3 billion in total by 2014.
This efficiency program will covers every aspect of business from production to
Solution Manual for Strategic Management: A Competitive Advantage Approach, Concepts & Cases

distribution and marketing. Unlike PepsiCo, rival Dr. Pepper Snapple Group (NYSE:
DPS) derives 90% of its revenue from North America and, 70% of it comes from
carbonated drinks. Thus, DPS is focusing on international expansion, as the firm recently
announced the repurchase of distribution rights in its South Asia and Pacific regions.
With this, DPS can now distribute its products in Australia, China, Japan, South Korea
and Malaysia directly. DPS is also planning to expand its four major products: 7UP,
Sunkist, A&W, and Canada Dry into the international market. These products were
launched in early 2013 in more international markets. Sales increased by 70% year-over-
year in January 2013 for 7/11 Stores. PepsiCo could try to acquire DPS.

ASSURANCE OF LEARNING EXERCISE 9C:

EVALUATE YOUR UNIVERSITY’S STRATEGIES

ANSWER:
This exercise is largely a reflection upon the earlier SWOT analysis students conducted for
their institution, especially Exercise 5G. Institutions of higher education face rising costs in
terms of salaries and benefits, technology, building maintenance, and more - at the same time
that state funding is dropping. In response, tuition fees have been on the rise, but the public
feels that tuition is rising too fast and that students are not getting added value for those
increased prices. Many schools are adding revenue by adding students, so classrooms and
dorms are becoming more crowded and is leading to decreases in satisfaction. Institutions are
also making other changes, such as the following:

1. Providing more online courses and degrees.

2. Providing satellite campuses.
3. Shifting to more practical, skills-based, certification course content, away from so
much theory and liberal arts approach.
4. Increase fundraising activities 10-fold, basically naming every classroom for a giver,
and of course every building for a contributor, etc.
5. Schools of business could alter their tenure and promotion guidelines to
encourage and reward more practitioner-based research and consulting from
faculty.
6. Business schools could hire more faculty who have business experience and
credentials.
7. Business schools could develop tracks with majors in order to enable students to
specialize in certain marketable areas.

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